Search

Ensign Energy Services Announces Record 2006 Financial Results

Overview
CALGARY, March 19 /CNW/ - The year ended December 31, 2006 was a record
financial year for the Company, and the fourth consecutive year in which the
Company has delivered year-over-year growth in all key financial measures. The
2006 fiscal year started strong, with customer demand and operating activity
levels building on the momentum gained in 2005. Oil and natural gas commodity
prices remained strong during the first half of 2006 and supported high levels
of oil and natural gas exploration and development activity throughout North
America and internationally. Significant growth in Canada in the first half of
2006, steady performance by the Company's United States oilfield services
division throughout the year, and gradual improvements in the international
market all contributed to the record financial performance of 2006.
The Company operates in a cyclical industry, the effects of which were
felt in the latter half of 2006. Concerns over natural gas commodity prices
began to impact demand for the Company's services in the Canadian market. As
natural gas commodity prices began to decline as a result of concerns over
rising natural gas inventory levels and predictions of warm winter weather in
North America, the Company's customers began to curtail their drilling
programs, particularly in the shallow natural gas and coal bed methane markets
of the Western Canada Sedimentary Basin. These factors negatively impacted
equipment utilization rates in Canada late in the third quarter, and
throughout the fourth quarter of 2006. As a result, the Canadian oilfield
services division exited 2006 at utilization levels lower than that
experienced in the prior year. Operating activities in the Company's United
States oilfield services division in the fourth quarter of 2006 were not
impacted as significantly by these short-term fluctuations in natural gas spot
market prices as customers' drilling programs in these regions tend to have a
longer-term focus. The strong financial performance delivered by the Company's
United States oilfield services division in the fourth quarter of 2006
partially mitigated the softness noted in the Canadian market and the
quarter-over-quarter decline in operating activity in the international
oilfield services division.
-------------------------------------------------------------------------
FINANCIAL AND OPERATING HIGHLIGHTS
($ thousands, except per share data and operating information)
-------------------------------------------------------------------------
Three months ended Year ended
December 31 December 31
-------------------------------------------------------------------------
% %
2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Revenue 421,908 476,192 (11) 1,807,230 1,520,724 19
-------------------------------------------------------------------------
EBITDA(1) 122,194 152,414 (20) 593,334 448,163 32
EBITDA per
share(1,6)
Basic $0.80 $1.01 (21) $3.91 $2.97 32
Diluted $0.78 $0.97 (20) $3.80 $2.87 32
-------------------------------------------------------------------------
Adjusted net
income(2) 66,155 81,796 (19) 337,352 231,685 46
Adjusted net
income per
share(2,6)
Basic $0.44 $0.54 (19) $2.22 $1.53 45
Diluted $0.42 $0.52 (19) $2.16 $1.49 45
-------------------------------------------------------------------------
Net income 63,938 59,969 7 341,284 169,665 101
Net income per
share(6)
Basic $0.42 $0.40 5 $2.25 $1.12 101
Diluted $0.41 $0.38 8 $2.18 $1.09 100
-------------------------------------------------------------------------
Funds from
operations(3) 109,579 112,154 (2) 420,173 337,186 25
Funds from
operations per
share(3,6)
Basic $0.72 $0.74 (3) $2.77 $2.23 24
Diluted $0.70 $0.71 (1) $2.69 $2.16 25
-------------------------------------------------------------------------
Weighted average
shares - basic
(000s)(6) 151,975 151,338 - 151,775 151,202 -
Weighted average
shares - diluted
(000s)(6) 155,779 157,590 (1) 156,229 156,224 -
-------------------------------------------------------------------------
Drilling
Number of
marketed rigs
Canada
Conventional 164 159 3 164 159 3
Oil sands
coring/
coal-bed
methane 22 21 5 22 21 5
United States 64 61 5 64 61 5
International(4) 47 47 - 47 47 -
Operating
days(5)
Canada 6,793 10,098 (33) 32,689 33,683 (3)
United States 4,538 4,103 11 18,252 15,897 15
International 2,453 2,794 (12) 9,151 10,282 (11)
-------------------------------------------------------------------------
Well Servicing
Number of
marketed
rigs/units
Canada 114 116 (2) 114 116 (2)
United States 11 8 38 11 8 38
Operating hours
Canada 48,009 59,579 (19) 206,951 209,667 (1)
United States 5,169 1,732 198 21,383 1,732 1,135
-------------------------------------------------------------------------
(1) EBITDA is defined as "Income before interest expense, income taxes,
depreciation and stock-based compensation expense". Management
believes that in addition to net income, EBITDA and EBITDA per share
are useful supplemental measures as they provide an indication of the
results generated by the Company's principal business activities
prior to consideration of how these activities are financed, how the
results are taxed in various jurisdictions or how the results are
impacted by the accounting standards associated with the Company's
stock-based compensation plans. EBITDA and EBITDA per share as
defined above are not recognized measures under Canadian generally
accepted accounting principles and accordingly may not be comparable
measures used by other companies.
(2) Adjusted net income is defined as "Net income before stock-based
compensation expense, tax-effected using an income tax rate of 35%".
Adjusted net income and adjusted net income per share are useful
supplemental measures as they provide an indication of the results
generated by the Company's principal business activities prior to
consideration of how the results are impacted by the accounting
standards associated with the Company's stock-based compensation
plans, net of income taxes. Adjusted net income and adjusted net
income per share as defined above are not recognized measures under
Canadian generally accepted accounting principles and accordingly may
not be comparable to measures used by other companies.
(3) Funds from operations is defined as "Cash provided by operating
activities before the change in non-cash working capital". Funds from
operations and funds from operations per share are measures that
provide shareholders and potential investors with additional
information regarding the Company's liquidity and its ability to
generate funds to finance its operations. Management utilizes these
measures to assess the Company's ability to finance operating
activities and capital expenditures. Funds from operations and funds
from operations per share are not measures that have any standardized
meaning prescribed by Canadian generally accepted accounting
principles and accordingly may not be comparable to similar measures
used by other companies.
(4) Includes workover rigs.
(5) All segments now report operating days based on "spud to rig
release". Accordingly, certain prior period comparatives may have
been changed to conform to the current year's presentation.
(6) All share and per share data has been restated to reflect the two-
for-one common share split in May 2006.
Revenue and Oilfield Services Expense
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Revenue
Canada 231,430 302,912 (24) 1,074,491 916,974 17
United States 128,185 110,388 16 505,748 387,050 31
International 62,293 62,892 (1) 226,991 216,700 5
--------------------------------------------------------
421,908 476,192 (11) 1,807,230 1,520,724 19
Oilfield
services
expense 283,982 308,000 (8) 1,161,213 1,031,412 13
--------------------------------------------------------
137,926 168,192 (18) 646,017 489,312 32
--------------------------------------------------------
Gross margin 32.7% 35.3% 35.7% 32.2%
-------------------------------------------------------------------------
For the year ended December 31, 2006, revenue totaled $1,807.2 million,
the highest recorded in the Company's history and a 19 percent increase over
the prior year. Increased operating activity and pricing strength in the
Company's United States oilfield services division, as well as a strong
operating and pricing environment in Canada in the first three quarters of
2006, were the largest contributors to the increase. Revenue for the fourth
quarter of 2006 totaled $421.9 million compared with $476.2 million for the
fourth quarter of 2005, a decrease of 11 percent. The net decrease in revenue
on a quarter-over-quarter basis is due to a decline in operating activity in
Canada resulting from softening demand, partially offset by an increase in
operating activity in the United States oilfield services division.
Oilfield services expense totaled $1,161.2 million for the year ended
December 31, 2006, a 13 percent increase from the prior year. Robust levels of
oilfield services activity around the globe in 2006 caused a marked increase
in demand for the skilled labour and materials that are critical to providing
the Company's services. This inflationary pressure on labour and material
costs is the primary cause of the increase in oilfield services expense on a
year-over-year basis. Oilfield services expense declined eight percent in the
fourth quarter of 2006 compared with the fourth quarter of 2005 due to a
decline in operating activity; however, increasing labour costs continued to
be a factor as labour rate increases became effective in Canada in October
2006.
Gross margin increased to 35.7 percent in 2006, compared with
32.2 percent in the prior year. The improvement in gross margin is
attributable to higher revenue rates, partially offset by higher labour and
material costs. Gross margin was negatively impacted in the fourth quarter of
2006 by lower equipment utilization rates and pricing pressure in Canada, as
well as annual maintenance activities in the Company's international oilfield
services division.
Canadian Oilfield Services
--------------------------
The Company's Canadian oilfield services division delivered solid
financial performance in 2006, growing revenue by 17 percent over the prior
year. The majority of this growth was achieved in the first half of 2006, when
strong oil and natural gas commodity prices drove operating activity to record
levels. High demand for the Company's services over this period also supported
strong pricing, with 2005/2006 winter pricing holding through most of the
summer and fall. However, towards the end of the third quarter of 2006 the
Company's Canadian operations noted a downward trend in operating activity.
The concern over declining natural gas prices and the resultant slow down in
shallow natural gas drilling activity were the contributing factors to this
decrease. Softening commodity prices continued to be a concern in the fourth
quarter of 2006, when the Company's Canadian operations experienced a decline
in operating activity and pricing pressure from customers. These factors
negatively impacted revenue and gross margins, both of which declined in the
fourth quarter of 2006 compared with the same period of the prior year.
During the year ended December 31, 2006, the Canadian oilfield services
division added five newly constructed drilling rigs, and one specialty
drilling rig to its fleet of equipment. These new drilling rigs have bolstered
the fleet in that the new equipment commands higher revenue rates and supports
the Company's ongoing safety initiatives. Two of the five drilling rigs
introduced in 2006 are Automated Drill Rigs (ADR(TM)s). The Company continues
to experience high demand for its proprietary ADR(TM) technology and has
expanded the technology to accommodate slant drilling capabilities and greater
depth capacity. As of December 31, 2006, the Canadian oilfield services
division had two slant well servicing rigs under construction. It is expected
that these well servicing rigs will be completed and placed into service in
the second quarter of 2007. The addition of these two slant well servicing
rigs in 2007 will offset the transfer of two well servicing rigs to the United
States, which occurred in the fourth quarter of 2006.
United States Oilfield Services
-------------------------------
The United States oilfield services division generated record financial
results in 2006 on the strength of heightened drilling activity in the Rocky
Mountain and California regions of the United States. The factors negatively
impacting Canadian operations in the latter half of 2006 did not meaningfully
impact United States operations, which continued to achieve revenue, gross
margin and operating activity increases on both a year-over-year and
quarter-over-quarter basis. Revenue for the year ended December 31, 2006
increased 31 percent over the prior year. Revenue increased 16 percent in the
fourth quarter of 2006 compared with the fourth quarter of 2005. In addition
to improved revenue rates and increased operating activity levels, these
increases also reflect contributions from the well servicing acquisition
completed near the end of 2005.
As the Company continues to introduce new equipment into the United
States market, it mitigates the impact of volatile commodity prices on
operating activity levels by ensuring that the new equipment is constructed
and operated under long-term take-or-pay contracts. Of the 16 new drilling
rigs approved for construction in 2006, three were completed and placed into
service by December 31, 2006. Construction of the remaining 13 ADR(TM)
drilling rigs is continuing as planned and will be completed throughout 2007.
Due to the early success of the United States well servicing acquisition
completed in 2005 and the potential for growth in this market, the Company
transferred two well servicing units from its Canadian fleet to the United
States in the fourth quarter of 2006.
International Oilfield Services
-------------------------------
The Company's international operations achieved moderate improvements in
financial performance in 2006, increasing revenue by five percent compared
with 2005. This was accomplished despite an 11 percent decline in operating
activity in 2006 compared with 2005. Revenue remained flat in the fourth
quarter of 2006 compared with the fourth quarter of 2005, while operating
activity declined 12 percent over this same period. The decline in operating
activity was partially due to contract renewal delays in Venezuela and the
relocation of two workover rigs from Ecuador to Argentina. These negative
events were partially offset by increases in operating activity in other
international locations, as well as by gradual price increases in these areas.
The Company continuously evaluates the international markets in which it
operates, and relocates equipment in response to changing market conditions
and to capitalize on opportunities in other regions. During 2006, the Company
entered the Thailand market, transferring one rig from New Zealand, and added
two rigs to its fleet of equipment based in Libya. Of the two rigs transferred
to Libya, one rig was redeployed from the Company's operations in Oman and the
other from New Zealand. The Company is also planning to bolster its equipment
fleet based in the Middle East and Africa with the refurbishment of two
drilling rigs and the reactivation of one previously idle drilling rig. In
addition, the Company plans to transfer one drilling rig from its Canadian
fleet to Australia in early 2007.
Depreciation
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Depreciation 18,604 20,117 (8) 80,921 74,917 8
-------------------------------------------------------------------------
Depreciation expense totaled $80.9 million for the year ended
December 31, 2006, an increase of eight percent over the prior year. Although
2006 operating activity levels remained fairly flat compared with 2005,
depreciation expense has increased due to a higher capital asset base
associated with the Company's rig building program.
For the three months ended December 31, 2006, depreciation expense
totaled $18.6 million compared with $20.1 million for the three months ended
December 31, 2005, a decline of eight percent. The decline in depreciation
expense in the fourth quarter of 2006 is due to a decline in operating
activity levels, offset by a higher capital asset base, compared with the
prior period.
General and Administrative Expense
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
General and
administrative 15,732 15,778 - 52,683 41,149 28
% of revenue 3.7% 3.3% 2.9% 2.7%
-------------------------------------------------------------------------
General and administrative expense totaled $52.7 million for the year
ended December 31, 2006, an increase of 28 percent over the prior year. The
increase is consistent with the expanded operations of the Company and the
revenue growth achieved during 2006. As a percentage of revenue, general and
administrative expense was 2.9 percent for 2006 compared 2.7 percent for the
year ended December 31, 2005.
For the three months ended December 31, 2006, general and administrative
expense totaled $15.7 million, consistent with the same period of the prior
year. As a percentage of revenue, general and administrative expense was
3.7 percent in the fourth quarter of 2006 compared with 3.3 percent in the
fourth quarter of 2005.
Stock-Based Compensation Expense
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Stock-based
compensation 3,410 33,580 (90) (6,050) 95,415 (106)
-------------------------------------------------------------------------
Stock-based compensation expense arises from the intrinsic value
accounting associated with the Company's stock option plan, whereby the
liability associated with stock-based compensation is adjusted on a quarterly
basis for the effect of vesting and exercising of stock options, as well as
changes in the underlying price of the Company's common shares. For the year
ended December 31, 2006, stock-based compensation is a net recovery of
$6.1 million. The net recovery is due to a decline in the price of the
Company's common shares, net of the impact of additional granting and vesting
of stock options. Stock-based compensation expense for the three months ended
December 31, 2006 totaled $3.4 million and is predominantly comprised of
additional vesting of stock options. The closing price of the Company's common
shares was $18.39 at December 31, 2006, compared with $18.55 at September 30,
2006 and $23.46 at December 31, 2005.
Interest Expense
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Interest 1,177 1,818 (35) 5,127 6,823 (25)
-------------------------------------------------------------------------
Interest expense is incurred on the Company's operating lines of credit.
The decrease in interest expense on both a year-over-year and
quarter-over-quarter basis is due to a decrease in the average utilized
balance outstanding of the Company's operating lines of credit, partially
offset by a slight increase in interest rates.
Income Taxes
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Current income
tax 6,236 32,602 (81) 131,436 80,841 63
Future income
tax 28,829 4,328 566 40,616 20,502 98
-------------------------------------------------------
35,065 36,930 (5) 172,052 101,343 70
-------------------------------------------------------
Effective
income tax
rate (%) 35.4% 38.1% 33.5% 37.4%
-------------------------------------------------------------------------
The effective income tax rate for the year ended December 31, 2006 was
33.5 percent compared with 37.4 percent in 2005. The decrease in the Company's
effective income tax rate on a year-over-year basis is primarily due to
substantively enacted federal and provincial income tax rate reductions in
Canada. The income tax rate reductions not only impact the current and future
income tax provision in 2006, but also resulted in a favourable adjustment to
the opening future income tax liability balance.
The effective income tax rate for the fourth quarter of 2006 was
35.4 percent compared with 38.1 percent in the fourth quarter of 2006. The
movement in the Company's effective income tax rate on a quarter-over-quarter
basis is partially due to the recognition of substantively enacted income tax
rate reductions in Canada. The impact of rate reductions in Canada is offset
by the fact that a greater proportion of pre-tax net income was generated in
the United States in the fourth quarter of 2006 compared with the fourth
quarter of 2005. Income generated in the United States is subject to higher
income tax rates than Canada.
Financial Position
The following chart outlines significant changes in the consolidated
balance sheets from December 31, 2005 to December 30, 2006:
($ thousands) Change Explanation
-------------------------------------------------------------------------
Cash and cash
equivalents (17,423) See consolidated statements of cash
flows.
Accounts receivable (22,031) Decrease due to a decline in operating
activity in the fourth quarter of 2006
compared with the fourth quarter of
2005.
Inventory and other 24,764 Increase due to additions to drill pipe
inventory in late 2006.
Property and equipment 264,024 Increase due to ongoing capital
expenditures and equipment under
construction, offset by depreciation
for the year.
Accounts payable and
accrued liabilities (4,708) Decrease due to a decline in operating
activity in the fourth quarter of 2006
compared with the fourth quarter of
2005, offset by ongoing capital
expenditure activity.
Operating lines
of credit (95,790) Decrease due to net repayments during
the year.
Stock-based compensation (53,958) Decrease due to a decline in the price
of the Company's common shares and the
exercise of employee stock options in
the year.
Income taxes payable 22,478 Increase due to the current income tax
provision for the year, offset by
income tax installments.
Dividends payable 4,589 Increase due to a 60-percent increase
in the quarterly dividend rate.
Future income taxes 41,020 Increase due to the future income tax
provision for the year, offset by a
one-time reduction associated with
substantively enacted income tax rate
reductions in Canada.
Shareholders' equity 335,703 Increase due to the aggregate impact of
net income for the year, increase in
capital stock due to exercises of
employee stock options, impact of
foreign exchange rate fluctuations on
the net assets of foreign self-
sustaining subsidiaries, less dividends
declared in the year.
-------------------------------------------------------------------------
Working Capital and Funds from Operations
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Funds from
operations 109,579 112,154 (2) 420,173 337,186 25
Funds from
operations
per share $0.72 $0.74 (3) $2.77 $2.23 24
Working capital 63,162 (11,878) 632 63,162 (11,878) 632
-------------------------------------------------------------------------
During 2006, the Company generated sufficient funds from operations to
finance its investing activities and dividend payments, as well as support a
net repayment of its operating lines of credits. Funds from operations totaled
$420.2 million ($2.77 per common share) in the year ended December 31, 2006, a
25 percent increase from the $337.2 million ($2.23 per common share) generated
in the year ended December 31, 2005. For the three months ended December 31,
2006, funds from operations totaled $109.6 million ($0.72 per common share)
compared with $112.2 million ($0.74 per common share) for the three months
ended December 31, 2005, a decline of two percent.
The Company's working capital position as at December 31, 2006 was
$63.2 million, a $75.0 million improvement over the working capital deficit of
$11.9 million at December 31, 2005. As of December 31, 2006, the Company
continued to operate with sufficient liquidity to meet its obligations as they
come due. The Company anticipates that its capital expenditure program and
quarterly dividend distributions will continue to be financed with internally
generated funds and available credit facilities.
Investing Activities
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Acquisitions - (17,430) (100) - (79,021) (100)
Net purchase of
property and
equipment (85,662) (84,506) 1 (325,483) (247,696) 31
Net change in
non-cash
working capital 12,000 17,750 (32) 40,053 14,956 168
--------------------------------------------------------
Cash used in
investing
activities (73,662) (84,186) 13 (285,430) (311,761) 8
-------------------------------------------------------------------------
The Company strives to provide its customers with safe and modern
equipment. In support of this goal, the Company expended $325.5 million in
2006 in connection with the modernization of its existing rig fleet and
new-build program, $85.7 million of which was expended in the fourth quarter
of 2006. Capital projects approved in 2006 included 16 newly constructed or
refurbished drilling rigs for the United States (including 13 ADR(TM)s); and
six drilling rigs (including two ADR(TM)s) and two slant well servicing rigs
for Canada. Of the United States additions, two conventional drilling rigs and
one ADR(TM) were completed and placed into service in 2006, with the remaining
ADR(TM)s expected to be delivered throughout 2007. All six of the new drilling
rigs constructed for the Canadian market were completed and placed into
service in 2006. The two new slant well servicing rigs are expected to be
completed and in service by the second quarter of 2007. The Company is also
planning to bolster its international equipment fleet with the refurbishment
of two drilling rigs and the reactivation of one previously idle drilling rig.
The remaining 2006 capital projects scheduled for completion in 2007 will be
financed with internally generated funds and available credit facilities.
The Company did not complete any corporate acquisitions during the year
ended December 31, 2006. In the year ended December 31, 2005, the Company
completed two corporate acquisitions totaling $79.0 million. In January 2005,
the Company acquired all of the issued and outstanding shares of Servicios
Petroleros Flint, C.A. and Flintco del Ecuador C.A. (subsequently renamed
Ensign de Venezuela C.A. and Ensign del Ecuador, C.A., respectively). Ensign
de Venezuela provides contract drilling and workover services in Venezuela.
The Company ceased operations in Ecuador in 2006 and repositioned the two
workover rigs previously operating in that country to Argentina. In November
2005, the Company entered the well servicing market in the United States
through the acquisition of Action Energy Services and Action Oil Field
Services, Inc. (subsequently renamed Ensign Well Services Inc.). Ensign Well
Services Inc. operates 11 well servicing units in the Rocky Mountain region of
the United States.
Financing Activities
Three months ended December 31 Year ended December 31
--------------------------------------------------------
% %
($ thousands) 2006 2005 change 2006 2005 change
-------------------------------------------------------------------------
Net (decrease)
increase in
operating lines
of credit (24,670) (10,534) 134 (95,790) 68,842 (239)
Issue of capital
stock 3,623 663 446 6,556 3,132 109
Dividends (12,155) (7,565) 61 (42,505) (25,706) 65
Net change in
non-cash
working capital 769 1,515 (49) 4,589 1,530 200
--------------------------------------------------------
Cash (used in)
provided by
financing
activities (32,433) (15,921) 104 (127,150) 47,798 (366)
-------------------------------------------------------------------------
During the year ended December 31, 2006, the Company generated cash flows
in excess of its operating and capital requirements, thereby allowing the
Company to reduce the utilized balance of its operating lines of credit. The
Company repaid a net $95.8 million and $24.7 million in the year ended
December 31, 2006 and in the three months ended December 31, 2006,
respectively. Subsequent to December 31, 2006, the Company increased the
amount available under its United States operating line of credit to
USD $50.0 million to finance its new build projects and support its expanded
operations in the United States. As of March 19, 2007, the Company had not yet
drawn on this United States based credit facility.
During the year ended December 31, 2006, the Company declared dividends
of $0.28 per common share, an increase of 65 percent over $0.17 per common
share declared in 2005. During 2006, the Company announced two increases to
its quarterly dividend rate: a 50 percent increase in the second quarter; and
a further seven percent increase in the fourth quarter of 2006. The Company
has increased its dividend every year since it began paying a dividend in
1995. Subsequent to December 31, 2006, the Company declared a dividend for the
first quarter of 2007. A quarterly dividend of approximately $12.2 million,
being $0.08 per common share, was declared for payment on April 2, 2007, to
all shareholders of record as of March 20, 2007. All dividends paid by the
Company subsequent to January 1, 2006 qualify as an eligible dividend as
defined by subsection 89(1) of the Income Tax Act.
Other financing activities include the issue of capital stock on the
exercise of employee stock options. During the year ended December 31, 2006,
$6.6 million was received on the exercise of employee stock options,
$3.6 million of which was received in the fourth quarter of 2006.
Outlook
The record financial results achieved by the Company during the 2006
fiscal year were generated despite a softening in demand for oilfield services
in Canada in late 2006. The demand for oilfield services in the Company's core
Canadian market was negatively impacted by the effect of reduced natural gas
commodity prices on the cash flows and operating plans of the Company's
customers. While natural gas and crude oil commodity prices have recovered
somewhat from recent lows, the Company does not anticipate a recovery in
demand for oilfield services in Canada until such time as the market is
satisfied with natural gas supply and demand fundamentals. At this point, we
have seen reduced winter level activity in Canada compared to the prior year
and the outlook for the second and third quarters calls for lower utilization
accompanied by reduced margins.
In contrast, the Company's United States operations have not only enjoyed
its most successful year ever, but this important market has yet to show any
significant signs of slow down. In 2007 the Company will complete its
previously announced build program in the United States, that will result in a
larger, very modern, technically-efficient rig fleet that will better position
the Company in the Rocky Mountain region and California markets. Activity
levels in the Rocky Mountain region will primarily be determined by natural
gas fundamentals and in this regard it is possible that demand for oilfield
services in the United States will follow Canada's lead and decrease later in
the year. Should activity levels begin to decrease, the Company's United
States drilling divisions have some protection given the term contracts
associated with the newly built or refurbished drilling equipment.
The Company's international operations continue to show steady
improvement in operational and financial results. A tighter global drilling
rig market has resulted in less downtime between contracts and improved
margins as contracts are renewed or negotiated. While there has not been a
"step change" in the magnitude of the improvements in the international
onshore drilling market, the direction of the changes have been positive and
the outlook is optimistic given favorable indicators around global supply and
demand fundamentals for crude oil. There remain a number of geopolitical
issues in key international onshore markets; however, the risks are being
monitored and managed to the extent that the Company is able.
The overall uncertainty around the current outlook for oilfield services
creates not only volatility with respect to the Company's financial results,
but also opportunities within the sector. The Company's strong balance sheet
and growth strategy will enable it to search for and take advantage of
opportunities to continue to grow through any real or perceived downturn in
activity in all of its market segments.
Recent Developments
The Company is pleased to announce the appointment of Mr. Bob Geddes and
Mr. Barth Whitham to its Board of Directors effective March 15, 2007.
Effective January 1, 2007, Mr. Geddes assumed the role of President and Chief
Operating Officer of the Company and has been with the Company for over
15 years. Mr. Whitham currently holds the position of President and Chief
Executive of Enduring Resources, LLC., based in Denver, Colorado. Mr. Whitham
also serves on several boards, including Western Bank Corporation and First
National Bank. Mr. Whitham holds a BS in Petroleum Engineering and a MS in
Economics.
Risks and Uncertainties
This document contains forward-looking statements based upon current
expectations that involve a number of business risks and uncertainties. The
factors that could cause results to differ materially include, but are not
limited to, political and economic conditions, crude oil and natural gas
prices, foreign currency fluctuations, weather conditions and the ability of
oil and natural gas companies to raise capital or other unforeseen conditions
which could impact on the use of the services supplied by the Company.
A conference call will be held to discuss the Company's fourth quarter
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 19, 2007. The
conference call number is 1-416-644-3418 or toll free 1-800-731-5774. A taped
recording will be available until March 26, 2007 by dialing 1-416-640-1917 or
toll free 1-877-289-8525 and entering reservation number 21223758 followed by
the number sign. A live broadcast may be accessed through the Company's web
site at www.ensignenergy.com.
Ensign Energy Services Inc. is an international oilfield services
contractor and is listed on the Toronto Stock Exchange under the trading
symbol ESI.
CONSOLIDATED BALANCE SHEETS
As at December 31, 2006 and 2005
(in thousands of dollars)
December 31 December 31
2006 2005
---- ----
Assets
Current assets
Cash and cash equivalents 14,570 31,993
Accounts receivable 365,075 387,106
Inventory and other 77,228 52,464
Future income taxes 11,010 20,534
-------------------------
467,883 492,097
Property and equipment 1,294,266 1,030,242
-------------------------
1,762,149 1,522,339
-------------------------
-------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 241,976 246,684
Operating lines of credit 69,989 165,779
Current portion of stock-based compensation 33,818 59,641
Income taxes payable 46,783 24,305
Dividends payable 12,155 7,566
-------------------------
404,721 503,975
Stock-based compensation 17,999 46,134
Future income taxes 231,824 200,328
-------------------------
654,544 750,437
-------------------------
Shareholders' Equity
Capital stock 154,838 136,972
Cumulative translation adjustment (20,163) (39,221)
Retained earnings 972,930 674,151
-------------------------
1,107,605 771,902
-------------------------
1,762,149 1,522,339
-------------------------
-------------------------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of dollars, except per share data)
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
---- ---- ---- ----
Revenue
Oilfield services 421,908 476,192 1,807,230 1,520,724
Expenses
Oilfield services 283,982 308,000 1,161,213 1,031,412
Depreciation 18,604 20,117 80,921 74,917
General and
administrative 15,732 15,778 52,683 41,149
Stock-based compensation 3,410 33,580 (6,050) 95,415
Interest 1,177 1,818 5,127 6,823
------------------------------------------------
322,905 379,293 1,293,894 1,249,716
------------------------------------------------
Income before
income taxes 99,003 96,899 513,336 271,008
Income taxes
Current 6,236 32,602 131,436 80,841
Future 28,829 4,328 40,616 20,502
------------------------------------------------
35,065 36,930 172,052 101,343
------------------------------------------------
Net income for the year 63,938 59,969 341,284 169,665
Retained earnings -
beginning of year 921,147 621,747 674,151 530,192
Dividends (12,155) (7,565) (42,505) (25,706)
------------------------------------------------
Retained earnings -
end of year 972,930 674,151 972,930 674,151
------------------------------------------------
------------------------------------------------
Net income per share
Basic $ 0.42 $ 0.40 $ 2.25 $ 1.12
Diluted $ 0.41 $ 0.38 $ 2.18 $ 1.09
------------------------------------------------
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
---- ---- ---- ----
Cash provided by (used in)
Operating activities
Net income for the year 63,938 59,969 341,284 169,665
Items not affecting cash:
Depreciation 18,604 20,117 80,921 74,917
Stock-based
compensation,
net of cash paid (1,792) 27,740 (42,648) 72,102
Future income taxes 28,829 4,328 40,616 20,502
------------------------------------------------
Cash provided by
operating activities
before the change
in non-cash working
capital 109,579 112,154 420,173 337,186
Net change in non-cash
working capital (9,854) (12,771) (25,016) (56,941)
------------------------------------------------
99,725 99,383 395,157 280,245
------------------------------------------------
Investing activities
Acquisitions - (17,430) - (79,021)
Net purchase of
property and equipment (85,662) (84,506) (325,483) (247,696)
Net change in non-cash
working capital 12,000 17,750 40,053 14,956
------------------------------------------------
(73,662) (84,186) (285,430) (311,761)
------------------------------------------------
Financing activities
Net (decrease) increase
in operating lines
of credit (24,670) (10,534) (95,790) 68,842
Issue of capital stock 3,623 663 6,556 3,132
Dividends (12,155) (7,565) (42,505) (25,706)
Net change in non-cash
working capital 769 1,515 4,589 1,530
------------------------------------------------
(32,433) (15,921) (127,150) 47,798
------------------------------------------------
(Decrease) increase
in cash and cash
equivalents during
the year (6,370) (724) (17,423) 16,282
Cash and cash
equivalents -
beginning of year 20,940 32,717 31,993 15,711
------------------------------------------------
Cash and cash
equivalents -
end of year 14,570 31,993 14,570 31,993
------------------------------------------------
------------------------------------------------
Supplemental information
Interest paid 1,069 1,984 5,358 7,350
Income taxes paid 22,078 16,464 108,958 76,189
------------------------------------------------
------------------------------------------------
%SEDAR: 00001999E